Inventory, not interest, is key

Good afternoon Real Estate Boys; it is well over 100 degrees outside as I write to you gentlemen. Boy the heat is on and it’s only July 2. While the heat is my question it has nothing to do with the weather outside. More to the point, my question is about the heat of the market. You Boys let your readers know about the interest rate hike a few weeks before it happened and you’ve been somewhat accurate about the market itself. So, with interest rates going up about a whole point last week, now here’s the question, what will that do to our real estate market in Turlock? I understand from the news the hike was to stop inflation but I want to hear “My Boys” take on the subject.

— Zelda

Well Zelda, your boys are blushing right now. We are incredibly honored to be “My Boys” and don’t take it lightly. But then Larry takes very little lightly. Interest rates are a curious subject today, therefore Larry is taking the lead for once. Larry says he has long had interest in interest and his knowledge will pay dividends for all readers if they follow along. Lar, you have the typewriter.

Thanks Lloyd and, yes, interest is of interest in the market today. Zelda, the market was becoming so hot in various spots of the country the Feds took a shot across the bow and raised the interest rates on mortgages about 1 percent, as you stated. Their thinking was/is if we raise the rates less people will qualify for a new loan.

A week after they raised the rates we can’t say we really have seen much of a difference in the rapid sales market. We listed three homes last week and two went into escrow within 24 hours. The third one took three or four days to sell. We think the market has a few more reasons it’s so strong. One reason there is a pent-up desire to finally be in a position to move again. For five years we’ve been stuck in the same old home we wanted to sell at the top of the market but we missed the top by a few months. Now we have some equity and actually can move up to another home. Then, I am five or six years older now, I want to retire in a few years and think we need to scale down a little so now is a good time to sell then buy another home. Many people jumped into the market again because prices were so darn low I could sell my present home and buy the one we’ve been wanting for years but could never afford it. This appreciation or inflation of the prices of homes has just happened in a few short months locally. From what I read, Atlanta, Phoenix, Las Vegas of course L.A. and San Francisco have been appreciating for over a year. Multiple offers in those cities are very common.

The same multiple offers are happening here also just not in the same magnitude. I have heard of Bay Area sales prices going as high as 3 to 400 thousand over the asking price. Locally, I heard an agent tell a listing agent their buyer would match any offer they accepted and then add $20,000 to get that house. Now Lloyd will have to explain why the market is so strange. Or is that strong?

Larry, the market is both strange and strong. It’s strange because we have an entire new set of rules Realtors must play by— an entire article in itself for a later date readers — then strong because there is no inventory in which buyers may choose. While we reserve judgment on the effects of a 1 percent rise in interest we don’t believe it will impact the market much. What Lloyd sees as a better alternative is the Feds forcing the banks “too big to fail” or any bank holding an inventory of foreclosed homes to get some of them listed with Realtors so there is some inventory. Lloyd feels if we had more supply there would be more competition and maybe lower the sales prices a little or stabilize them. There currently is no supply, which has really made the prices go north. Lar and I have written before the media be it newspapers, TV and radio all are saying we are done with the recession. The stock market is above where it was when it crashed six years ago. All we hear today are positives, therefore it must be true. If it’s true as they say, then it’s time to spend. Close it up Lar.

Ok Lloyd how’s this. Current interest rates are still the best they been in the last 50 years. Here’s one of those old stories to put it all in perspective. It was Sept. 11, 1979 and I had just sold my first home in Denair. Interest rates were 9 percent and we made an offer to purchase another home. Everything was cool. The buyers of the house we were selling to wanted to get a Cal Vet loan and it took until Jan. 11, 1980 for it to fund and close. In that short four months interest went from 9 percent — the rate had been 9 percent for years — to 18 percent. I am not going to say the Feds did it, but we had been in an inflationary real estate market back then even. The mistake was it didn’t have the desired effect on the market. It didn’t slow the market is killed it. Interest rates at the bank for a 90 day CD were as high as 14 percent prior to the rise. The entire economy went in the tank on that one. Again, I’m not saying who was at fault here. The fact is that it killed the market.

Just think how it would be qualifying for an 18 percent loan. Rates stayed in the teens for 10 years. I recall a bunch of Realtors standing around the break table telling lies saying “if we could only get rates down to 12 percent.” “At 12 percent we could sell the heck out of house.” Let’s worry about getting inventory folks. Inventory will calm the hot market all by itself.

— A little about us, Lloyd is a retired farmer of 27 years and a realtor for about 10 years. Lloyd is an active member of the Central Valley Association of Realtors and sits on the CVAR Board of Directors. Lloyd is a long time member of CVAR’s Master Club for his sales production.

Larry has been involved in Turlock real estate for 30 years and has been a broker for almost 27 years. He is also active in CVAR activities and is a past president of CVAR. If you have questions please call Lloyd at 531-4853 or Larry at 484-4216. E-mail questions for future columns to: lrblackman@earthlink.net or lndrumbeck@aol.com.